Critical illness insurance is a supplemental health insurance plan that pays you a lump sum benefit if you are diagnosed with a covered critical illness. The most common critical illnesses are heart attacks, invasive cancer and strokes.
Benefits paid to you can be used to pay for out-of-pocket medical expenses that insurance doesn’t cover such as copays, deductibles and coinsurance. However, the funds can also be use for whatever purpose you want.
Face Amount
The face amount is the amount of critical illness insurance.
Face amounts generally range from $5,000-$50,000.
How Much Critical Illness Insurance Do You Need?
If you decide to enroll in critical illness, I recommend one of three amounts:
- To cover your medical plan deductible
- To cover your medical plan out-of-pocket maxium
- Higher amounts if you have a family history of critical illnesses
A critical illness is expensive to treat. There’s a good chance you’ll meet your out-of-pocket maximum if you get diagnosed with one. You also might be out of work and need money to pay your bills.
Guaranteed Issue Coverage
Critical illness is normally guaranteed issue up to certain plan limits. This means that there are no medical questions.
Amounts applied for above the guaranteed issue are subject approval of the insurance company. The employee will need to complete and submit evidence of insurability.
Covered critical illnesses
Here is a sample list of covered critical illness. The actual list of covered conditions will vary by insurance carrier and policies.
| Covered critical illness | Percentage of face amount paid |
| Heart attack | 100% |
| Coronary artery bypass surgery | 50% |
| Cancer | 100% |
| Carcinoma in situ | 50% |
| Skin cancer | $500 |
| Stroke | 100% |
| Paralysis | 100% |
| Major organ transplant | 100% |
Most conditions pay a benefit equal to 100% of the face amount. Other conditions such as carcinoma in situ might pay a percentage of the face amount. Others, like skin cancer, might pay a flat dollar amount.
Initial Occurence Benefit
The initial occurrence benefit is the amount paid for the first diagnosis after the effective date.
Reoccurrence benefit
A reoccurrence benefit is paid when the same condition occurs again. For example, you are initially diagnosed with a heart attack. You file a claim and the initial occurrence benefit is paid. Later, you have another heart attack. The second heart attack would be a reocurrence of the same condition.
In order for a reoccurrence benefit to be paid, usually a specific amount of time must separate the two diagnosis.
This amount of time will vary from 0 days to as much as 12 months.
Additional Occurrence Benefit
An additional occurrence benefit is paid if you are diagnosed with a different condition than the initial occurrence. For example, you are initially diagnosed with a heart attack. Later, you are diagnosed with cancer. The cancer diagnosis would be considered an additional occurrence.
Just like the reoccurrence benefit, in order to qualify for the additional occurrence benefit, there must be a separation period. This separation period usually ranges from 0 days to as much as 12 months.
It’s been my experience that the separation period for an additional occurrence is shorter than the reoccurrence benefit.
Pre-Existing Condition Limitation
Some critical illness policies have a pre-existing condition limitation. This means that any claim during the limitation period may be denied due to a pre-existing condition.
Sometimes employees think that if there is no pre-existing condition limitation that any condition diagnosed prior to effective date of coverage would be paid.
However, no critical illness that is diagnosed prior to the effective date would be covered.
Wellness Screening Benefit
A wellness screening benefit is a common critical illness benefit. Each policy year, the insured can get a wellness screening benefit. This benefit pays between $50-$200 when the insured gets a qualifying screening test and submits the claim to the insurance company.
Conclusion
While critical illness doesn’t cover every medical condition, it does cover many of the most expensive conditions you might be diagnosed with.
Matching up a face amount to your deductible or out-of-pocket maximum can be a good strategy to protect yourself.
